Posts Tagged ‘oil’

If you discover more than ten years of reserves, politicians are apt to take it away from you.

So for the last hundred years or so, the world has only had ten years worth of proven oil reserves left and has been about to run out in ten years or so. In fact the world has only had about ten years of anything left for the past hundred years or so.

King Hubbert created a composite, mega-decline curve that predicted U.S. crude oil production would peak in the 1965-70 time period. But, of course, it did not decline. So his prediction was retroactively relabelled “Lower 48 states Oil Production”. Which retrodiction was true – for a while. Retrodictions always are. See global warming for example.

Well, for some time US oil production in the lower 48 states has been increasing. So it was re-relabelled “Lower 48 states conventional oil Production” The new story was that fracking has intolerable environmental and financial costs, so is not a practical replacement for old type oil production.

When Trump stopped the government from funding and organizing people to protest fracking, the intolerable environmental costs mysteriously vanished in a puff of smoke, and when Trump made it easier to get permission to frack, so did a large part the economic costs, with the result that US frackers are now giving the Saudis a hard time.

For a given technology, and a given price, a given oilfield or group of oilfields does indeed follow a Hubberd Curve, and you can use the curve to estimate what the real reserves are. (They are usually enormously greater than the official reserves.)

Although science has been stagnating since Harvard got the upper hand over the Royal Society, technology that makes money continues to advance. We have a problem with new blue sky technologies. No one in the west is developing new technologies any more, just polishing up existing profitable technologies. We are not getting any replacement for chip patterning usin one hundred and ninety three nanometer excimer laser lithography, just ever more minute improvements in excimer laser lithography, with the result that Moore’s law has run out of puff. People keep talking about ten nanometer, but it is just not going anywhere. They keep saying they will use both one ninety and ten. If ten was working, would not use one ninety. If they were talking ninety nanometer, rather than ten, then I would be impressed. If someone could make money out of supersonic jets, we would get better and better supersonics, but instead, planes are slowing down, not speeding up. But people could make money out of drilling and stimulating oil fields, so drilling and oilfield stimulation got better and better, and continues to improve.

Physical resources are effectively infinite, in that physical limits to growth are unlikely to be a significant problem in the reasonably foreseeable future. The problem is social decay.

My explanation for high oil prices is the collapse of oil states. Arnold Kling argues that instead the problem is that investors fear the collapse of advanced states, so are reluctant to take their money.

My explanation is that oil states are increasingly short of the competence to pump oil, the ability to provide security to people pumping oil, and the credibility to make deals with people who are competent to pump oil — for example it is difficult for foreign companies to pump oil in Nigeria, because there are too many different bandits and terrorists to pay them all off, and difficult for foreigners to pump oil in Venezuela or Mexico, because the government cannot credibly promise not steal everything, and difficult for the Venezuelan government to pump oil, since it could not run a pie stand, plus the security situation in Mexico, though better than Nigeria, is deteriorating.

Arnold Kling, however, argues that the problem is the increasingly scary on book and off book debt levels of the advanced nations, in particular the US. Investors fear hyperinflation. Where to put their money? Answer: Buy commodities that are underground, and leave them underground.

Political correctness is that we should not drill for oil, for more oil will not solve the problem of high and rising fuel prices. Which political correctness the mainstream media firmly endorse.

There are multiple bans on oil drilling. Bush ended one of them, which had no immediate effect on oil drilling, for other bans in place. But it had immediate psychological effect. Oil prices immediate dropped about eighteen dollars, a huge drop, which the press is frantically trying to explain away with any explanation other than the glaringly obvious one.

If the politicians suspended enough bans that drilling actually became legal again, we would therefore see an immediate and considerably bigger drop in the price of oil, even before any actual drilling takes place, for sellers of oil, expecting competition to cut their prices in future, would sell oil right now, to take advantage of present high prices.

The price of oil is absurdly high, because sellers of oil observe that the high price is not leading anyone to go out and get more oil, from which they conclude that oil can only go higher still, so they might as well sit on it.

The energy crisis happened because of optimistic projections – that gas to liquid and coal to liquid would not be needed until the technology had been improved and the cost brought down, that the dramatic growth in China and India could be accommodated by rapidly expanding conventional oil production.

The political elite, unable to introduce a carbon tax because it would directly and visibly hurt people, proceeded to block coal and oil developments, thus invisibly and directly hurting people. The plan to develop America’s vast shale oil reserves was shot down a few weeks ago by the Democrats. At the same time, various oil states suffered partial, and in the case of Nigeria, near total collapse, making it difficult to extract oil without employing old fashioned imperial methods which are politically unthinkable in this day and age.

I wish I could end this by saying “so the solution is…”. But there just is not a solution. Energy is best produced in big, large scale projects. In a world of insecure property rights, where corporations are unpopular and disarmed, big projects are no longer feasible. The general world trend is any big project is going to be unworkable without a correspondingly big bunch of guys with guns who have the right, and feel they have the right, to do what it takes to protect that project. As I have said before, underground coal gasification followed by gas to liquids conversion is the technological solution, but that technological solution requires a political solution, and that political solution is nowhere on the horizon.

I wish I could end this by saying “so the solution is…”. But there just is not a solution. Energy is best produced in big, large scale projects. In a world of insecure property rights, where corporations are unpopular and disarmed, big projects are no longer feasible. The general world trend is any big project is going to be unworkable without a correspondingly big bunch of guys with guns who have the right, and feel they have the right, to do what it takes to protect that project. As I have said before, underground coal gasification followed by gas to liquids conversion is the technological solution, but that technological solution requires a political solution, and that political solution is nowhere on the horizon.

I am continually puzzled by the world’s chronic inability to do basic arithmetic, but I see that econbrowser has done the maths on oil.

There are a lot of people in China. There are no longer large political obstacles to competent and industrious people in China making money. Therefore, very soon, a lot of Chinese will be making a lot of money. Therefore China will soon be consuming an enormous amount of oil. Econbrowser concludes China will soon be consuming a lot more oil than is ever likely to come out of the ground.

Therefore the price of oil will rise without limit until coal to oil and nuclear to hydrogen fills the gap. And right now, coal to oil projects are insignificant, and nuclear to hydrogen is not even on the drawing board. Therefore in the next decade or so, oil will rise to astonishing heights, far above present prices.

When oil spikes abruptly, that means people made incorrect investment decisions – under invested in exploration, development, and gas to liquids conversion.

A simple back of the envelope calculation tells me they are still under investing. Exxon recently abandoned gas to liquids plant that would be profitable if oil remains above forty dollars to fifty dollars a barrel. But if everyone acts like that – and everyone is acting like that – oil is going to be way above fifty a barrel.

Do I hear someone saying “Hey. Do you think you are lot smarter than the guys running Exxon?”

It is quite simple. For the price of oil to remain stable at present levels, we need to accommodate China’s industrialization by producing a lot more oil each year. The planned increases in oil production add up to peanuts. So the price of oil is heading up, and going to stay up.

To keep the price of oil from soaring even further the world needs to increase oil production three million barrels per day, each year, largely because large numbers of Chinese want to drive cars.

We cannot increase production except in those places where private property rights are reasonably secure, and there is no oil left in the ground in those places. So it has to be coal to liquids.

Most coal to liquids plants are being developed in China. Du Minghua, deputy director of the China Shenhua CTL research institute, said China could produce thirty million tonnes of liquid fuels each year by 2020.

That is six hundred thousand barrels per day. That is about one sixtieth the rate of increase we need.

In America greenies are taking the same approach to banning coal to liquids as they have taken to banning nuclear power. The proposed regulation is that Americans will not be allowed to convert coal to liquids on a large scale unless they can prove that the CO2 can be permanently disposed of – but of course nothing can ever be proven to those who choose to make themselves too stupid to understand the proof. Presidential candidate Obama goes one step further, and proposes to ban substitutes for oil unless they emit twenty percent less CO2 than oil, which bans any use of coal to substitute for oil

A coal to liquids plant needs to be fairly large scale to be economical, needs to produce at least three million tonnes per year, sixty thousand barrels per day. To stop the price of oil from rising further, the world needs to build one of these plants every week, for the next several decades, to meet the Chinese demand for cars.

Yet we see no political will to permit such developments, and not a lot of enthusiasm amongst developers to doing them. To the extent that developers are working on such projects, their primary focus is on assuaging greenie opposition, rather than the technological problems of converting vast amounts of coal to oil. If it is hard to get oil wells drilled off the coast of California or in Alaska, what are your prospects of getting a coal to oil plant approved?

People are starving yet we still treat energy developers as criminals, rather than heroes.

The twentieth century was the century of the red famines. Now, in the twenty first century, we are seeing the first greenie famine. Let us hope it will not be the first of many.

The red famines killed an extraordinary number of people during the twentieth century – famines caused in part by carelessness, in part by active malice as socialists sought to centralize all food under their direct control. To some extent the red famines were intended to end resistance by depopulating large areas, to some extent they were produced by incompetence, as politicians and bureaucrats directed farmers how they should farm, and some of which were caused by casual neglect, as those politicians and bureaucrats simply forgot to feed their captives.

We are seeing much the same with the first greenie famine. It should have been possible to figure out that converting enough food to feed near a billion people into fuel was likely to cause problems.

Of course, the failure of capitalism to smoothly convert from oil to coal is also a problem, but the conversion has not been made any easier by the fact that it typically takes ten years to get such a plant approved, if you can get it approved at all.

There is a green path and a brown path to dealing with the failure to pump enough oil. Environmentalists complain that coal to liquids conversion is on the brown path, and take for granted that the green path is inherently better and more virtuous, so much more virtuous that simply being in favor of it makes them more virtuous. They neglect, however, to explain that the green path involves a substantial and rapid population reduction.

Demand for oil will continue to rise. The supply is not rising. The only solution is massive coal to liquid plants. Coal to liquid plants can produce substitutes for gasoline, such as methy isobutyl ether, at about a dollar a gallon at the refinery gate. So why is it not happening?

Coal to diesel is a more mature technology. Coal to gasoline substitute is still theory and experiment. Maybe it is not happening because they are still working on it. But even coal to diesel is only happening on a rather small scale, a fraction of a percent of the scale needed to keep the price of oil from rising even further.

We are seeing the much predicted resource crisis and associated hunger that the greens have long predicted. Capitalism and the free market should, in theory, remedy this, providing a smooth conversion from oil to coal. No smooth conversion is happening, which may well be part of the reason so many people are losing faith in capitalism. The subprime crisis is not a good advertisement for capitalism either. Of course capitalism, unlike socialism, manages to resolve such crises without murdering millions, but this does not mean that it is working satisfactorily. When capitalism screws up badly, as is happening right now, people are inclined to listen to demagogues who tell them that if only the demagogue got to make decisions, instead of those wicked capitalists, all would be well.

There is an oil crisis, and there is a food crisis. People in Haiti are eating dirt. Women are giving their babies away to random strangers. People who formerly were poor, and able to afford little more than enough to eat, now are unable to buy enough to eat.

I, of course, am more worried about the oil crisis, but the food crisis is probably more important.

Becker says that food prices are not going to be a problem

the second reason for optimism relates to the lower productivity of food production in the poorer parts of the world relative to the United States and other developed countries. Higher food prices will induce an increase in productivity in developing nations by encouraging greater use of machinery, fertilizers, and other forms of capital.

In fact of course, the problem with food is the same as the problem with oil. In most of the world if you apply machinery and so forth, your tractor is probably going to be stolen, and you yourself quite likely killed in the process, just as if you drill an oil well, your oil rig is probably going to be stolen, and you yourself quite likely killed in the process.

It would be hugely profitable to drill new oil wells in Iraq, and upgrade and maintain existing oil wells, but no one is doing it for obvious reasons. Similarly for drilling water wells and digging irrigation ditches in Iraq. Whenever you ask businessmen why they are investing gigantic sums in Alberta oil sands, and not investing elsewhere in the world in oil that is far easier to extract, they will tell you.

Tractors are just as attractive to tyrants, demagogues, and terrorists as pipelines are.